Probate law

Hastings-Bass applied

The Hastings-Bass principle (see Hastings-Bass Deceased, Hastings-Bass v IRC [1975] Ch 25) rears its head again in Abacus Trust and Another v Barr and Another (2003) LTL, 7 February.

The facts are fairly simple.

The settlor set up a trust in the Isle of Man in which he had a life interest subject to an overriding power of appointment in favour of discretionary beneficiaries.

The settlor decided that he wanted the trustee to exercise the power of appointment to create discretionary trusts in respect of 40% of the trust fund for the benefit of his two adult sons and to the exclusion of himself and his wife.

The settlor asked his professional adviser to relay his instructions to the trustee.

Unfortunately, the adviser misunderstood the instruction and told the trustee that the settlor wanted a settlement of 60% in favour of the sons.

The trustee made the appointment in 1992.

At first it was thought that there was no basis for challenge and the settlor took no steps to do so.

However, in 2002 the parties applied to court to challenge the appointment under the Hastings-Bass principle.

Mr Justice Lightman, when commencing his judgment, said: 'Equity does not afford a trustee or beneficiary a free pass to rescind a decision which subsequently proves unpalatable or unfortunate and substitute another.

Relief is only available if necessary conditions for its grant are satisfied.'

In a case where it is claimed that Hastings-Bass applies the court should ask:

- What were the trustees under a duty to consider?

- Did they fail to consider it?

- If so, what would they have done if they had considered it?

Mr Justice Lightman made some important points about the way in which the rule operates:

The rule does not require that the trustee's mistake be fundamental.

All that is required is that the unconsidered matter would or might have affected the trustees' decision.

It was clear on the evidence that had the trustees known of the settlor's wish for a 40% appointment, they would have complied with it.

It is not sufficient to show that the trustee made a mistake.

The trustee must have failed to consider something he was under a duty to consider.

If the trustee has identified the proper considerations and used all proper care and diligence in obtaining the relevant information and advice, the trustee cannot be in breach of duty and its decision cannot be impugned merely because the information turns out to be partial or incorrect.

In the present case, the trustee had failed to take adequate steps to ensure that it received a correct rather than a garbled version of the settlor's wishes.

It had failed to seek his wishes in documentary form or to provide him with a copy of the proposed appointment before execution.

It failed in its fiduciary duty to ascertain the true wishes of the settlor to which the appointment was intended to give effect.

Accordingly, the rule was brought into play.

A successful challenge made to a decision under this rule should result in the decision being held voidable and not void (as with a decision challenged on the ground of breach of fiduciary duty).

This meant that matters such as the lapse of ten years since the appointment, the settlor's decision not to take any legal advice or any effective action until 2001, his acquiescence, until then, in the appointment having full legal effect and the fact that substantial payments had been made to the sons would be significant.

The matter was adjourned to allow consideration of whether or not the appointment should be avoided.

Secured tenancy

In Mendoza v Ghaidan [2002] 4 All ER 1162, the Court of Appeal allowed an appeal from a same-sex partner of the deceased.

Paragraph 2 of schedule 1 to the Rent Act 1977 allows 'spouses' and 'persons living with the original tenant as his or her wife or husband' to succeed to a secured tenancy.

Members of the tenant's family can obtain only an assured tenancy.

At first instance, the deceased's partner was told that following the House of Lords decision in Fitzpatrick v Sterling Housing Association [2001] 1 AC 27, he did not qualify as a cohabitee but that he could be regarded as a member of the family.

He claimed that he should be entitled to a secured tenancy.

Article 14 provides that the enjoyment of the rights and freedoms set out in the European Convention on Human Rights shall be secured without discrimination on any ground such as sex, race, colour, etcetera.

Sexual orientation is not mentioned but, according to Lord Justice Buxton, is now clearly recognised as an impermissible ground of discrimination on the same level as the examples set out in article 14.

Article 8 places the state under an obligation of positive action to protect the values of family life and (in this case) home.

Here there was a difference in treatment of same-sex and heterosexual couples in relation to the home.

There was no adequate justification for the difference in treatment.

The Court of Appeal held that paragraph 2 infringed article 14 and that the court, therefore, had to try to read the schedule in such a way as to give effect to the convention rights of surviving same-sex partners.

That could be done by reading the words 'as his or her wife or husband' to mean 'as if they were his or her wife or husband'.

While it was true that the words 'husband' and 'wife' are in their natural meaning gender-specific, they are also, in their natural meaning, limited to parties to a lawful marriage.

According to Lord Justice Buxton: 'Parliament, by paragraph 2(2), removed that last requirement.

And Parliament having swallowed the camel of including unmarried partners within the protection given to married couples, it is not for this court to strain at the gnat of including such partners who are of the same sex as each other.'

The decision is likely to have implications in relation to the Inheritance (Provision for Family and Dependants) Act 1975.

Cohabitees can apply for maintenance from the deceased's estate if they fulfil the appropriate conditions which include: living in the same household as the deceased; and 'as the husband or wife of the deceased'.

By Lesley King, College of Law, London